Labour Cost Index (Quarterly)

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Abstract

The Labour Cost Index sits alongside the Producers Price Inputs Index (which measures changes in businesses’ current costs of production, excluding labour and capital costs, as defined by the New Zealand System of National Accounts' concept of intermediate
consumption) and the Capital Goods Price Index (which measures changes in businesses’ capital costs).

Purpose

The labour cost index measures changes in salary and wage rates for a fixed quantity and quality of labour input. Service increments, merit promotions, and increases (or decreases) relating to performance of the individual employee are not shown in the index.

Usage and limitations of the data

The index measures changes in labour costs at a sector, sector by industry, sector by occupation, and industry by occupation level, providing users with a level of detail to meet most requirements.
The salary and wage rates index is a quality-controlled measure, which provides a “pure” indicator of changes in pay rates not affected by compositional changes such as industry employment shifts.

The index quantifies the impact on employers’ labour costs of changes in the labour market such as the emergence of skill shortages, the trading off of overtime rates, and the impact of economic growth, consumer inflation.
The index provides information on the distribution of changes in pay rates (such as what proportion remain unchanged on an annual basis, what proportion increase by up to 2 percent, etc.

The index is used in wage negotiations.

The index is used in contract escalation clauses (also referred to as cost fluctuation adjustment clauses). In these, the salary and wage rates index for the appropriate industry (or occupation) group is used together with the corresponding Producers Price Inputs Index (which measures movements in the price of non-labour production costs), to determine an appropriate cost fluctuation adjustment.
This allows both parties to a contract to have an agreed procedure for adjusting the originally tendered price, therefore compensating the party providing the goods and services for ongoing changes in labour and non-labour input costs.

The index is used by economic forecasters and policy makers to monitor and forecast wage movements. The Reserve Bank uses the Labour Cost Index, in conjunction with the Quarterly Employment Survey, to monitor and forecast changes in unit labour costs and nominal wage inflation, which feed into monetary policy settings.
The index is used within Statistics New Zealand, such as in the National Accounts, in the Producers Price Index and in calculating the now discontinued Real Wage Rate Index (which adjusted changes in pay rates for changes in tax rates and consumer prices).

The index excludes irregular salary and wage payments such as irregular bonuses, commissions and one-off payments in lieu of wage increases.
The index excludes performance-based increases in salaries and wages, promotions and service increments.

There are no gender breakdowns.

There is no information available on the average dollar value of wages. This is because the sample is not randomly selected, is relatively small and is designed to measure changes not levels.